M&A Quarterly - September 2019

Market Summary

TEV/EBITDA in Q2 2019 increased to 7.6x from 6.9x in the prior quarter, bringing the YTD 2019 average to 7.2x, in-line with 2018. in Q1 2019 declined to 6.9x from 7.8x in the prior quarter, almost identical to the drop reported in Q1 2018; for reference, in 2018, it was followed by strong quarterly performance as the year unfolded.

The two industries showing the highest EBITDA multiples during Q2 2019 were technology and retail at 10.8x and 9.2x, respectively. EBITDA multiples for all manufacturing companies averaged 6.7x, which is 0.6x above historical averages. industries showing the highest EBITDA multiples during Q1 2019 were retail and business services at 9.2x and 7.4x, respectively. EBITDA multiples for all manufacturing companies averaged 6.7x, which is 0.6x above historical averages.

On average, larger buyouts receive a premium to their EBITDA multiples. The spread on size premiums for larger deals between $50 and $250 million compared to deals between $10 and $50 million was 1.2x through Q2 2019, which is below the average historic level of 2.2x and the smallest size premium recorded since 2014.larger buyouts receive a premium to their EBITDA multiples. The spread on size premiums for larger deals between $50 and $250 million compared to deals between $10 and $50 million was 1.6x in Q1 2019, which is below the average historic level of 2.3x and the smallest size premium recorded since 2014.

Buyers continued through Q2 2019 to reward businesses with premiums for above-average financials (TTM revenue growth and EBITDA margins above 10% or one above 12% and the other 8%). Buyouts for businesses with above-average financials averaged 7.6x vs. 6.6x for all others, a premium of 15% and a drop from the 25% average premium in 2018. Q1 2019, buyers continued to reward businesses with premiums for above-average financials (TTM revenue growth and EBITDA margins above 10% or one above 12% and the other 8%). Buyouts for businesses with above-average financials averaged 7.2x vs. 6.3x for all others, a premium of 14% and a drop from the 25% average premium in 2018.

Debt utilization ticked up through Q2 2019 with senior debt/EBITDA multiples across all industries at 3.4x compared to 3.0x in 2018.utilization ticked up slightly in Q1 2019 with senior debt/EBITDA multiples across all industries at 3.3x compared to 2.9x the prior quarter, which is above the 2019 average of 3.0x.

Average equity contributions through Q2 2019 returned to historical levels of 44.5% after a spike to 49.0% in 2018; for reference, equity contributions had remained remarkably consistent in the 43-45% range from 2015 – 2017.equity contributions returned to average historical levels of 43.4% in Q1 2019 after a spike to 48.9% in 2018; for reference, equity contributions had remained remarkably consistent in the 43-45% range from 2015 – 2017.

Private equity buyers remain active, driven by historically low borrowing costs. The percentage of deals completed by PE firms increased to 39.4% through Q2 2019 from historical averages of 27-32%. Due to strong fundraising efforts, PE firms are currently sitting on nearly $1 trillion of cash ready to deploy.

What’s new at Taureau Group

June – Kicked off marketing of companies in the following industries: engineered casting; refrigerated transportation and brokerage; automated and engineering solutions equipment manufacturing; and industrial electrical & engineering services.

July – Began demolition and renovation of Taureau Group’s new office space, located at 320 E Buffalo St., Suite 401, Milwaukee, WI – stay tuned for an open house announcement forthcoming.

August – Managing Director & Owner, Corey Vanderpoel, appointed to the Board of Directors of PSB Holdings, Inc. (OTCQX: PSBQ) and Peoples State Bank.

September – Managing Director & Owner, Ann Hanna, appointed Chairperson of the Board of BizStarts, Inc., a Milwaukee organization that supports early-stage companies in southeast Wisconsin.valuation assessment for a company in the cutting tool manufacturing industry.

Register for our annual M&A Forum - to be held October 9th at the Lambeau Field Atrium Legends Club. Topic: Historic Proportions: How a Robust M&A Market is Paving the Way for Decision Makers. Go to taureaugroup.com/event/historic-proportions-ma-forum to sign up now.

Active Broad Acquisition Searches

Add-on opportunities for buy-side clients in the plastics manufacturing and niche technology/automation industries.

Add-on opportunities for buy-side client looking for engineering or architectural service firms with revenues between $2 million - $15 million.